EU to impose $4 billion in tariffs on U.S. goods
By: Jerry Janowski | Source: International Herald Tribune
February 27, 2004 3:35PM EST

WASHINGTON The European Union trade commissioner, Pascal Lamy, told senior lawmakers Thursday that the United States would face $4 billion in sanctions starting Monday because Congress has failed to eliminate overseas tax shelters for U.S. exporters that were declared illegal by the World Trade Organization.

Lamy delivered a similar warning in November as Europe was preparing to levy sanctions against the United States for tariffs on steel imports, and one month later President George W. Bush lifted the disputed tariffs.

But the political and economic climate has changed, and Lamy's reception in Washington this week has been markedly different. He won no assurances from senior lawmakers that the competing bills aimed at resolving the problem would even reach the floor of Congress before the spring recess on April 5.

Instead, the politics of the presidential campaign this year, with its focus on job losses and trade, has helped block any agreement. What was essentially a tax issue is now being portrayed by Republicans and Democrats as a jobs issue, and neither party wants to appear on the wrong side of that debate.

And even though the $4 billion in sanctions is the largest penalty ever authorized by the WTO, it has not elicited the same sense of outrage as the steel decision, primarily because the sting of the sanctions has been blunted by the drop in the dollar's exchange rate with the European currency, which has reduced the price of U.S. exports. The dollar has fallen almost 20 percent against the euro over the past 12 months.

The Europeans have promised to phase in their sanctions gradually, beginning with a 5 percent tariff that would rise to 17 percent over the coming year. The pain will be felt primarily by American farmers and manufacturers. The Europeans will begin by imposing tariffs on agricultural goods, leather products, paper, steel, nuclear reactors, machinery, carpets, clothing and other goods that are directly competitive with their own products.

In the steel tariff case, the Europeans had targeted products in states that would be critical in the presidential election, a tactic they discarded in this case, choosing instead to sanction American products that compete directly with their own goods.

Meanwhile, the U.S. effort to avoid the sanctions is bogged down on Capitol Hill. Industry is supporting legislation sponsored by Representative William Thomas, Republican of California and chairman of the Ways and Means Committee. It would eliminate the export tax break but would compensate American manufacturers with $60 billion in other tax breaks over the next 10 years.

There is also a Senate bill that would provide tax breaks for domestic manufacturers.

But neither one of these measures will be enacted by the Monday deadline.

At a luncheon in Washington, Lamy told a trade association that the sanctions would begin on Monday and only be lifted "the day Congress passes the necessary legislation." But, he said, he would have preferred that Congress had repealed the subsidies for American exports once it had lost the case on appeal two years ago. "The name of this game is repeal, not retaliate and not sanction," Lamy said during an address at the European-American Business Council.

European and American officials have warned that a penalty of $4 billion could test the WTO and urged that the issue be resolved quickly.

Two years ago, after the United States lost the initial ruling, Robert Zoellick, the U.S. trade representative, said of the penalty that "there's no doubt that if it starts to go into affecting that much trade, it's like using a nuclear weapon on the trading system."

This week, a senior European official warned that it was important that the United States acknowledge the validity of the penalty and then move quickly to resolve the problem.

"It is a huge issue of credibility of the WTO dispute-settlement system," he said.

Email this Article

Printer Friendly Version